Industrial Organization and Performance in the mutual fund industry: the Italian case

In the asset under management industry, the investors give a formal mandate to a third party intermediary to manage on their behalf a portfolio of financial instruments. A relevant bulk of literature studies the problem of quality/performance measurement. Some empirical evidences underline that investors are not always able to select the product with higher performance. Another issue in this sector is the role and the function of distribution channels. In Italy, as in many other European countries, we observe several configurations in distribution of mutual funds but vertical integration prevails in particular within banking groups. In this Vertical-integrated pattern, the production plays a subordinate role compared to that of distribution. Data from Assoreti show that the paradigm of exclusiveness is becoming outdated. Using a panel data model, the results of the analysis show a relevant impact of stock managed by company (dimensional effect); the effectiveness of promoter increases when the number of customers in his portfolio decreases and when his customers have a high level of turnover. A very significant effect is given by the “producer” of funds, the network which sells a greater percentage of funds by third-party improves the flows. The model tests also financial measures but there are no evidences that the performance affected the flows. This phenomenon may reveal that the past performance and the persistency of performance don’t influence the choices of the investors and so the inflows. This result is consistent with the study of Krahenen Schmidt and Theissen (2006). These results could suggest that the two-sided market configuration may fit the asset under management industry. The case of Italian mutual funds shows both platform and merchant features and therefore lie in-between these two extremes. In vertical integrated model the bargaining power is given by monopolistic power, but empirical evidences show that the networks sell also products made by different producers. The possibility to transform the market in a pure platform couldn’t be the best solution. A possible alternative could consider two different strategies, on the one hand the lawmaker could impose a separation between the distribution and consulting services, on the other hand all networks should sell all the products.